China Stocks Decline for Fourth Day; Haitong, Air China Retreat

By Zhang Shidong

Aug. 26 (Bloomberg) -- China's stocks fell for a fourth day, led by brokerages, after daily trading value yesterday dropped to the lowest since November 2006.

Haitong Securities Co., the country's largest listed brokerage by market value, dropped 7.8 percent on concern lower turnover will slash income. Air China Ltd. retreated to the lowest in 20 months on speculation the cost of paying overseas debt will rise as the yuan weakened the most in four weeks. Baoshan Iron & Steel Co. led steelmakers lower after a newspaper said it will cut product prices in the fourth quarter.

The CSI 300 Index, which tracks yuan-denominated A shares listed on China's two exchanges, sank 69.02, or 2.9 percent, to 2,331.53 at the close. China Life Insurance Co., the nation's biggest insurer, dropped 0.9 percent after first-half profit slumped 32 percent.

``You'll see worse corporate earnings in the third quarter than in the previous two quarters,'' said Zheng Tuo, who manages $790 million at Bank of Communications Schroders Fund Management Co. in Shanghai. ``The possibility cannot be ruled out that the market will seek a bottom at a lower level.''

China's benchmark index has slumped 56 percent this year, the most among 89 major benchmark indexes tracked by Bloomberg. That has prompted a government plan to let investors sell bonds that can be swapped for shares to deter equity sales and support the market, according a Beijing-based official of the regulator, who declined to be identified before a proposal is made public.

Yuan Slides

The China Securities Regulatory Commission is studying exchangeable bonds as part of a package of measures to restrict sales of state-owned shares, the official said. China has become the world's worst-performing market this year because of concern measures to cool inflation will damp growth in the economy and corporate earnings.

China's yuan fell 0.22 percent to 6.8481 a dollar yesterday on speculation the government is seeking a stable currency to prevent the economy from slowing after the Olympic Games.

Haitong Securities dropped to 15.50 yuan. Citic Securities Co., the brokerage unit of China's biggest investment company, retreated 4.3 percent to 17.93 yuan. Sinolink Securities Co. plunged 8.6 percent to 30.28 yuan. Hong Yuan Securities Co., China's first publicly traded brokerage, fell 5 percent to 12.54 yuan.

Shares worth 39.7 billion yuan ($5.8 billion) were traded on the Shanghai and Shenzhen stock markets yesterday, the lowest since Nov. 14, 2006, according to data compiled by Bloomberg. That compared with an average daily trading value of 101 billion yuan in July.

Air China Slumps

Air China, the nation's largest international carrier, slumped 7.9 percent to 5.63 yuan, the lowest close since Dec. 29, 2006. China Southern Airlines Co., the nation's biggest carrier by fleet size, sank 7.2 percent to 5.17 yuan. China Eastern Airlines Corp., the nation's third-largest carrier by fleet size, lost 8.8 percent to 4.90 yuan.

China Eastern's passenger numbers dropped 11 percent in July, a fourth monthly decline, while Air China's fell 6.8 percent, according to data released this month by the two carriers, as restrictions put in place for the Beijing Olympics disrupted travel.

A weakening yuan boosts the value of airlines' dollar- denominated debts when converted into the local currency. China Southern made a full-year currency gain of 2.83 billion yuan in 2007. That was more than its 1.87 billion yuan net income. Air China earned 2.03 billion yuan from the appreciation of the yuan last year.

Cold-Rolled Steel

Baoshan Steel, China's biggest steelmaker, dropped 5.8 percent to 6.30 yuan. Wuhan Iron & Steel Co., China's third- biggest steelmaker by value, fell 7.5 percent to 7.06 yuan. Maanshan Iron & Steel Co., one of China's biggest producers of construction steel, lost 6.1 percent to 4 yuan.

Baoshan Steel lowered its fourth-quarter price for cold- rolled steel by 300 yuan, the China Securities Journal reported, without saying where it got the information. The reduction in cold-rolled products is the company's first price cut this year.

PetroChina Co., the nation's biggest oil company, fell 1.8 percent to 13.37 yuan. It agreed to buy parent China National Petroleum Corp.'s 50 percent stake in an oil and gas exploration company for $11.8 billion, the Wall Street Journal reported, citing a person familiar with the matter. The company may sell new shares in Shanghai to fund the acquisition, it said.

The Shanghai Composite Index, which tracks the bigger of China's stock exchanges, slid 2.6 percent to 2,350.08. The Shenzhen Composite Index fell 4 percent to 646.47.

To contact the reporter on this story: Zhang Shidong in Shanghai at szhang5@bloomberg.net